Even as the government is fine tuning the operational details of Production Linked Incentive (PLI) scheme for specialty steel, Indian Steel Association (ISA), the representative body of steel makers has asked for a longer gestation period for realising the benefits of setting up new production facilities under the scheme.
"ISA, as well as steelmakers have been deliberating with the government and points of concerns have been shared. For instance, a longer gestation time is required for steel mills to realise PLI benefits instead of five years," Dilip Oommen, President of Indian Steel Association (ISA) and CEO of AM/NS (ArcelorMittal/Nippon Steel) India says.
The association wants the PLI initiative to support the collaboration among the integrated steel players and smaller specialty steel players wherever end-to-end production is happening within the country. "Investments for setting up upstream assets also need to be adequately incentivised. Moving up the value chain by increasing the production of specialty steel shall help counteract the lack of cost competitiveness," Oommen says. Industry welcomes the scheme, however, investment decisions by members would depend on the details of the scheme and how it dovetails with their individual business plans going forward, he adds.
According to ISA, lack of cost competitiveness in the export market has skewed the export-import performance of steel. One of the reasons cited is the huge export incentives received by foreign exporters (close to 13 percent in China), high capital/ logistics cost in India and higher effective tax rate on steelmaking inputs in India. The PLI scheme is expected to accelerate the growth of manufacturing, boost economy while simultaneously enabling India to play a bigger role in the global supply chain.
"As downstream manufacturing and construction techniques become more advanced, they will increasingly require value added and higher-end steels - be it for infrastructure or as input materials. The PLI scheme for specialty steel will create domestic capacities for such products, meeting the requirements both domestically and internationally," Oommen says.
It is known that increased use of coated steel (e.g. Colour coated, Aluzinc coated, etc.) which is corrosion resistant shall reduce corrosion losses in the country. As per estimates by the Ministry of Statistics and Programme Implementation (MOSPI), as much as 10 percent of GDP is lost every year on account of consumption of fixed capital. India has the ability to meet the entire colour coated steel requirements.
"Steel for certain applications in high strength steels, alloy steel bars and rails is imported owing to a lack of economies of scale in production. Global competitiveness shall enable the domestic industry to access demand internationally and bring such economies of scale to the domestic industry. Also, in some cases the order size is lower than minimum order quantity (MOQ). However, order aggregation by domestic and export orders will help," Oommen says.
The ISA says that the assessment on the impact of global competitiveness in the country needs full details of the PLI scheme that are still awaited. The association also points out that PLI needs to be complemented with the implementation of requisite Remission of Duties or Taxes on Export Products(RODTEP) and Border Adjustment Tax (BAT) to address tax inefficiencies and provide a level playing field.
"Investments in steel plants are capital intensive. A higher allocation for the steel industry would give a fillip to invest in this sector. There is no doubt that an effective PLI scheme shall boost production of higher-end steel in the country, reducing imports and foreign exchange outgo. At the same time, the spin-off effects of employment generation shall further boost the general economy," Oommen says.